The emerging market currency crisis is being propelled by policymakers who are “seeking the easy answer” by devaluing their currency, which is an unsustainable global model, Saxo Bank CEO Steen Jacobsen told RT.

The spectacular loss of value in emerging market currencies – the
South African rand, the Russian ruble, the Indian rupee, and the
Turkish lira- is a result of government's tightening monetary
policy, which has even further driven down the value against the
euro and dollar.

Governments face huge monetary policy decisions in the third and
final stage of the global financial crisis which kicked off in
2008 with America's sub-prime mortgage crisis and spilled into
Europe, but simultaneous devaluation of currencies in the hope of
driving up exports can’t be universally applied, says the Saxo
Bank chief.

“We are in the final part of this cycle. Which comes next is
probably the mandate for change. We all need to change, the
export-driven business model isn’t sustainable,” Jacobsen
told RT in an interview at his Moscow office.

2013 has been a train wreck of a year for emerging currencies,
which are taking a huge beating from the euro and dollar as their
respective economies regain post-crisis strength.

India’s rupee has had one of its worst years ever, and in 2013
lost 11 percent against the dollar. The ruble has hit a 5-year low against both the dollar and euro, soaring
above 48 rubles against the euro, and over 35 rubles against the
dollar.

The rand hit a 5-year low at 11.3785, the highest since October
2008. The Turkish lira and Mexican peso fell in response to the
big dip.

Devaluation is being fueled by policymakers in emerging markets.
In an effort to make the ruble a free-floating currency, the
Russian central bank is cutting its monetary intervention and
increasing the boundaries of a currency corridor, which is
sending the currency to record lows against both the euro and the
dollar.

“Policymakers are always seeking the easy answer, and the
easy answer right now is weakening the currency. But by doing
that you have to remember that the only reason anyone buys into
an emerging market is because you expect the currency to
appreciate. Pursuing devaluation long term will hurt the appetite
of long term investors,” Jacobsen explained.

“We don’t need to go to a full-blown crisis mode here,”
Jacobsen said, but warns if all emerging markets pursue similar
devaluation strategies, nothing will change.

“The only thing we have learned from this crisis is that we
have learned nothing in the sense that we lack reforms, every
political country needs reform,” he said, adding, “we
all need to change, because the export-based business model isn’t
sustainable.”

Knocking down a currency is a policy tool that is accessible,
quick, and a bit of a “dirty” maneuver, according to Jacobsen,
and is a main stumbling block in the way of real economic reform.

“In history, the only change that we have comes from crisis.
We need the crisis to create a new and better mandate for
change.”

US not to blame

America’s monetary policy has been at the center of the blame
game over the huge amounts of investment that has spilled out of
emerging markets, and for the severe currency losses in Brazil,
Indonesia, Turkey, India, South Africa, and Russia. However,
Jacobsen says the blame shouldn’t all be thrown on Uncle Sam.

In the case of the ruble, “at least 50 percent is internally
driven, and the rest is external factors. The crisis you see in
the ruble is driven by Russian politics.”

Jose Vinals, the director of the IMF’s monetary and capital
markets department, said Tuesday the volatility in global markets
is caused by problems in particular developing countries and not
linked to the US Federal Reserve's decision to reduce its monetary stimulus.